In the past, prior to the internet age, if a buyer was interested in finding a property he had little choice but to select a real estate agent to represent him as a buyer's broker. Even then, prior to the enactment of the agency disclosure regulations that agents and brokers are subject to today, a buyer did not necessarily always know if his agent or his agent's office had any relationship with the seller in the same transaction. These days, many prospective buyers believe that because real estate websites offer free access to the Multiple Listing Service ("MLS") and the growing "For Sale by Owner" market, there is no longer a need to engage the services of a buyer's agent. With all these listings at your fingertips, all you need to do is pick the one you like and make an offer, right? The short answer is: yes. The long answer is: yes, but you will undoubtedly realize very quickly, or worse, not realize at all, that you have put yourself at a distinct disadvantage because the other players in the game know the rules, have more resources and will exploit both at your expense.
Beyond industry knowledge and experience, into which we will delve deeper later on, the other value that a buyer's agent brings to the table is time. The foundation of any client service business is built upon the notion that the service provider is charging the customer to do something the customer either does not have the skills or the time to do for himself. Digging deeper, the customer may ultimately decide that she has the time, but given the price of the service, she decides that there is a cost benefit derived from paying the service provider to perform the service and then going off and doing something entirely different with the time saved. In the case of buyer agency, there is no decision to be made on this front...in most cases; the broker is paid by the listing broker, not the client [1]. Some buyers argue that because they are paying the purchase price, they are paying the buyer's agent. These buyers believe that if they present an offer to a seller's agent without buyer's representation, they will be able to purchase the property for a lower price because there is no buyer's agent commission. This is simply not true. The reality is that the listing broker has an agency relationship with her principal, the seller. That agreement is usually for a percentage of the ultimate sales price, commonly 5%. Of that commission, the listing broker usually offers a percentage to cooperative agents: buyer's agents, facilitators or rarely, sub-agents. If no such cooperative agent exists, guess who gets the balance of the commission? Not the seller. Not the buyer, but the listing broker. Your goal, if you believe that you can save yourself money by representing yourself is to essentially present an offer that says something to the effect of: "I agree to a purchase price of $100,000, but the listing broker can only receive 2.5% as a commission because I do not have a buyer's agent." You do not have a say in the agency relationship between the listing broker and her principal. You are not a party to that arrangement. Some brokers may agree to reduce their fee in certain circumstances, but it is no secret that a prospective buyer without a buyer's agent is more attractive to the listing agent who stands to receive the full 5% than to the seller who pays the same 5% commission either way.
As such, by entering the transaction without representation, not only have you turned your back on years of industry knowledge, hours of market research, planning, and coordination of showings with listing agents...etc - all of which for the benefit of you and you alone, but you have also done it despite the fact that the service was, for all intents and purposes, free.
Aside from the logical appeal for using a buyer's agent, it is important for the buyer to understand exactly what that agent should bring to the table. As with service providers in any industry, the buyer's agent is only valuable if he or she can perform and is performing at or above the expectations of the client. At a minimum, a serviceable buyer's agent should meet with the principal to explain the agency arrangement and discuss the search criteria[2]. In Massachusetts, all real estate salespeople and brokers are required to provide, at their first meeting, prospective clients with what is known as a "Licensee-Consumer Relationship Disclosure" from. This form not only describes the different types of agency relationships, but also acknowledges the one you are about to enter[3]. With regard to the search criteria, it sounds simple, but how many buyers have complained that their agent inundates them with countless listings that do not interest them at all? While it could be that the agent has ignored the principal's wishes, it is also possible that the principal has not effectively communicated his or her criteria. It is important to remember that the agent is not interested in wasting your time either. Both you and the agent only benefit from the arrangement if you close on a purchase[4]. By providing your agent with a specific set of search criteria, you will enable the agent to focus the search to include the properties that best match your interests.
Beyond the minimum level of performance, an effective buyer's agent is one who understands the process not only from the perspective that he or she knows which forms to fill out or how much to put down to bind an offer, but one who can read sellers' agents and has a feel for the area and the market. You are looking for a buyer's agent to be able to walk into a property and confidently begin to form an idea as to what the property is worth because either they know what similar properties in similar condition have traded for recently and or they are able to identify, either through questioning the listing agent or by observing elements of the property, potential defaults or hidden assets that are specific to the property. For example, everyone may notice if a property needs new windows or if the kitchen is outdated, but an experienced buyer's agent may be able to tell you a house down the street that is similar in size and features sold for $10,000 less than the asking on this one, and it had just been renovated with all new appliances, cabinets and countertops. The agent knows this because he or she looked up recent sales in the area and may have even contacted the sales agents for more information. Experienced buyer's agents are always looking for details that can help the buyer gain leverage when negotiating either an offer or the purchase and sale contract.
A thorough understanding of the market is another weapon in an effective buyer's agent's arsenal. When a listing agent is negotiating a listing with a seller, a key component of the sales pitch is a Competitive Market Analysis ("CMA"). A CMA is a detailed analysis of the property using comparable properties in the area in order to arrive at a strategic sales price. This is an effective way to determine the approximate value of the seller's home, but the process should not be limited to the sales side of the equation. A buyer, armed with the same information as the seller, is in a better position to gauge a property's value than someone who is unaware of the seller's competition or recent trends.
The last and most important quality you, as a consumer, are looking for in a buyer's agent is people skills. Agency representation is nothing more than an individual or organization contracted to act in the place and best interest of another individual or organization. Many believe that a reason to forego buyer representation is that notion that who better to negotiate my interests than me? The answer, consistent with the rest of the answers here, is someone who has your interest in mind and is also experienced in dealing with the game and the players. A buyer's agent that is an effective communicator and negotiator will add considerable value to the terms of the buyer's offer and or purchase and sale agreement. An agent that is gruff, unfriendly, unprofessional or lazy will likely get you to the finish line but may leave money or other consideration on the bargaining table.
No group of buyers is in more of a need of buyer representation than first time homeowners. Purchasing a home is a process. Like any other process, if you do not have either a firm understanding of the elements or prior experience, you cannot expect to be an expert. Even those consumers that have been through the process in the past, you still cannot consider yourself to be an expert in comparison to the thousands of real estate salespeople and brokers who navigate through the process for a living. It is important to understand that the value received from an effective buyer's agent is not always measured in getting the best deal on the property you decide to buy, but it could be that the agent was able to provide you with valuable information on a different property that you were about to buy, and in the process, saved you from making a poor investment decision.
For more information or if you have general questions or comments about this article, contact the author - Ryan McDonnell
Also, for an expanded look at the process of buying a home, please see a related article by the author: What To Do Before You Buy: A Prospective Buyer's Guide Through the Purchase Process
[1] Standard buyer agency agreements stipulate that in cases where a seller or seller's agent does not offer compensation to a buyer's agent, the buyer's agent is entitled to a fee paid by the buyer. This language is negotiated prior to the execution of the buyer agency agreement.
[2] The search criteria are the responsibility of the principal. The agent is obligated to show a principal every available listing unless the principal narrows it down - by town, by price, by number of bedrooms...etc
[3] If you are interested in the agent representing you, and you alone as a buyer, be sure that is clearly stated in the disclosure form. Be aware that it is possible that the agent has listing arrangements to sell properties that may be among those included in your search. In these instances, the agent will either approach you about the notion of dual agency representation or refer you to another agent in his or her office.
[4] Some buyer agency agreements include a retainer whereby the agent is compensated regardless of the ultimate success or failure of the buyer's search. As with the fee arrangement discussed in footnote 1, this is specifically addressed prior to the execution of the agency agreement.